German government okays Europe's latest rescue fund

31st August 2011, Comments 0 comments

Angela Merkel's German cabinet on Wednesday approved changes to the latest European rescue fund which now goes to parliament for ratification, officials said.

Extending the European Financial Stability Facility's (EFSF) mandate was agreed on July 21 by European leaders to alleviate the eurozone debt crisis.

The reforms must be ratified by lawmakers across the 17-nation eurozone.

The EFSF, which was set up last year, is to be allowed to buy sovereign debt in public markets and loan money to eurozone governments and commercial banks under certain conditions.

They also agreed to nearly double its effective lending capacity to 440 billion euros ($635 billion), which in Germany's case will mean increasing its guarantees from 123 billion euros to 211.

Finance Minister Wolfgang Schaeuble said the fund would be used only "in case of a threat to the eurozone as a whole, and only if a strict programme of financial and economic reforms is offered in exchange".

He said in a statement: "With these improvements to the temporary rescue fund we will implement a large part of the most recent decisions taken by European heads of state or government."

The EFSF is a temporary fund which is due to be replaced, in 2013, by a permanent rescue programme, the European Stability Mechanism (ESM).

"Other measures, including participation by the private sector to the rescue fund for Greece and to the ESM will follow over the next few weeks," Schaeuble said.

The cabinet did not discuss a proposal, put forward by the ruling coalition's parliamentary factions, which would have deputies introduce new rules to ensure that parliament is given a formal say on future aid packages, along with oversight over EFSF operations.

Such a proposal will be discussed by members of parliament directly, Schaeuble said.

The ruling coalition of conservatives and liberals fears a number of their own backbenchers might abstain, or vote against, extending the EFSF when the bill is put to a vote in the Bundestag, the lower house of parliament, probably on September 29.

The Bundesrat, the upper house, is expected to vote on September 29 or 30.

Chancellor Merkel is assured of a parliamentary majority as opposition Social Democrats and Greens have said they will back the bill.

But she would suffer a humiliating setback if she has to rely on the opposition, rather than her own coalition.

Wolfgang Bosbach, a member of Merkel's Christian Democrats and the chairman of the parliamentary committee on domestic affairs, told ARD public television he would oppose the bill.

"I'm assuming the government will muster its own majority... but what's important for me is what I promised my electors," he said.

Bosbach said he did not opposed further aid for debt-ridden Greece.

"But I fear we're risking a permanent liability if we don't change the rules. That's why we need firm rules in case a country becomes hopelessly trapped in debt and isn't capable over time to repay what it owes," he added.

Vice-chancellor Philipp Roesler, the leader of the Free Democrats, suggested for his part on Wednesday that all eurozone members should tighten their financial rules, "for example by reducing the current budget deficit ceiling to under 3 percent".

© 2011 AFP

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